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Researchers look for a way to measure area sales

KING BANAIAN
Published 5:04 p.m. CT Sept. 12, 2015

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Mercedes Gutierrez Cedillo signs her name on an iPad-based point-of-sales system after swiping her credit card for Holly Hagemeyer to pay for a phone cover June 18 at Cellairis in Crossroads Center. Monthly data on local area sales tax collections provides insight on the Central Minnesota economy.(Photo: Times photo)Buy Photo

We are always looking for new ways to gauge the St. Cloud economy. Data for localities of our size are often difficult to find, and one real problem is to find other measures of general economic activity besides employment. We usually measure general economic activity with a combination of employment, sales, income and production data, but the latter three are difficult to get in a timely fashion.

We recently started looking at monthly data on local area sales taxes as collected and reported by the Minnesota Department of Revenue. Since 2003, St. Cloud and other area cities have had a 0.5 percent sales tax on those items on which we collect state sales taxes. That tax base excludes several items, most importantly food eaten at home and clothing. The sales tax base in 2003 in St. Cloud was about 58 percent of per capita income, showing the narrower base of sales versus income taxes in Minnesota. It is also the case that as income rises or falls, total sales of taxable goods fluctuates more than total retail sales generally, since food and clothing are necessities whose demand changes little with changes in economic activity. Grocery stores are not recession-proof but experience fewer fluctuations in sales than, say, an automobile dealership.

With that background, consider the nearby graph, which uses monthly local area sales tax receipts to infer total taxable sales in the local area. (See footnote 1 below.) We removed seasonal fluctuations and then, to take out some of the volatility and expose trends, we took a six-month moving average of this data, much like what we do for leading economic indicators. When compared to LEI, as shown on the graph, the two lines move in sync. Leading indicators peaked in June 2007, six months before the national recession started and 10 months before the peak in local taxable sales in April 2008. (In comparison, private employment — not shown on the graph — peaked in March 2008.) But LEI misses the bottom of the recession in taxable sales, turning upward in March 2010, five months after the rise in taxable sales and simultaneous to the rise in private employment. (See footnote 2.)

Our estimate of sales rose 4 percent between June 2014 and June 2015 to an annual rate of $1.85 billion, indicating that on this alternative measure of general economic activity we are seeing real growth (since prices grew less). We also can infer from other special tax revenues an increase in economic activity over the last year on the sales side: Hotel and motel revenues were reported by the city to be up 1.6 percent, and food and beverage tax receipts were up 9.9 percent in the 12 months ending in June.

This figure of $1.85 billion allows a very rough guide for sales more generally in the MSA. Scaling up to include food and beverage, and the excluded parts of the MSA, gives us total sales of about $5.3 billion. This compares to personal income of $7.3 billion in 2013, the last figure reported by the U.S. Department of Commerce. The difference between the two figures mostly consists of taxes and savings, and is not implausible. We will research these data more closely in upcoming months to see if a more refined measure of area sales is possible.

Footnote 1: The sales tax extends to six cities — St. Cloud, Sartell, Sauk Rapids, St. Augusta, St. Joseph and Waite Park — leaving out the rest of Benton and Stearns counties that are included in the MSA. The excluded area contains 40 percent of the population.

Footnote 2: The gap in the series for taxable sales results from a change in data collection that caused November 2008 data to be reported in the adjacent months. We believe the data before and after the change are comparable.

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